World Bank

World Bank: Malaysia’s Economy Expected To Decline In 2023 Before Picking Up In 2024

World Bank

According to the World Bank, Malaysia’s GDP would contract to 3.9% this year before rebounding to 4.3% in 2024 thanks to domestic private sector spending.

Apurva Sanghi, the lead economist for the World Bank, predicted that in 2023, private consumption will grow at a comparatively rapid rate of 5.2%.

He stated today at a media event for the World Bank East Asia and Pacific economic update and Malaysia economic monitor that “this will be sustained by improvements in labour market conditions and the government’s ongoing household income support initiatives.”

Due to dim prospects for the global economy and a slowing pace of international trade, the country’s total exports are expected to decline by 5.8% in comparison to a growth of 14.5% in 2022.

As government tax revenue is falling while strict spending on salaries, pensions, and interest payments keeps rising, Sanghi said the shrinking budgetary space continues to be a concern. 

This is made worse by a variety of inefficient expenditure practices, such as widespread fuel subsidies and unfair pricing regulations.

The “Madani Economy,” the government’s medium-term economic strategy, was just unveiled. Its goal is to get the fiscal deficit down to 3.0% of GDP or less. 

The government is expected to provide further information on its plans for subsidy reform on October 13 when it presents its budget for 2024.

Related link: Malaysia’s economy to remain moderate in the near term

According to Sanghi, stronger global and regional markets, rising oil prices, interest rate differentials, and a shift in the position of foreign investors will likely support Malaysia’s anticipated improved economy in 2024.

The poverty rate in Malaysia had not decreased despite the post-pandemic recovery, according to Sanghi.

The most recent government projections place the absolute poverty rate at 6.2% in 2022.

“This marks a decline from the pandemic peak of 8.4% in 2020 but is above the pre-pandemic rate of 5.6 percent in 2019,” he said.

This highlights how urgent it is to improve social safety nets and restore fiscal reserves.

In order to rebuild its fiscal buffers, Sanghi added, “We think it’s high time for Malaysia to have a proper medium-term revenue strategy.”

External threats are anticipated to be quite severe for the economy. A more dramatic slowdown than anticipated could occur as a result of more severe global growth shocks. 

The main domestic sources of downside risk are correlated with the unpredictability of domestic inflation. 

Increased domestic inflation might weaken the power of consumer spending. 

Further monetary tightening can also be prompted by an increase in inflation.

If policies are implemented to increase the economy’s inclusiveness, it is anticipated that poverty and income disparity will further decline as the economy expands. 

Around 490,000 Malaysian households are still at risk and are struggling with Covid-19’s effects. This emphasises how crucial it is to have social protection programmes that are efficient and precisely targeted.

A key factor in guaranteeing greater coverage and improved protection is the government’s initiative to create PADU (Pangkalan Data Utiliti Kebangsaan), the national household socioeconomic database, as a foundation for identifying eligible recipients.

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